FINANCIAL HIGHLIGHTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
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In thousands
(except per share data) 1997 1996
- ------------------------------------------------------ ---------- ----------
Net sales............................................. $2,114,718 $1,985,145
Special charges(1).................................... $ -- $ 97,067
Net earnings (after special charges).................. $ 154,861 $ 59,868
Net earnings per common share:
Basic............................................... $ 2.83 $ 1.13
Diluted............................................. $ 2.81 $ 1.12
Average shares outstanding:
Basic............................................... 54,717 53,059
Diluted............................................. 55,090 53,512
Cash dividends declared per common share.............. $ 1.12 $ 1.12
Shareholders' equity.................................. $ 977,381 $ 868,382
Capital expenditures.................................. $ 116,719 $ 107,807
Employees............................................. 16,400 14,700
Shareholders of record................................ 5,039 5,611
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- ------------------------------------------------------ ---------- ----------
[CHART]
(1) Special charges of $97.1 million pretax in 1996 consisted of merger costs,
restructuring costs and other charges. Excluding those charges, earnings per
share would have been $2.36 basic and $2.34 diluted in 1996.
(2) Special charges in 1996 reduced net sales, net earnings, diluted earnings
per share and return on average shareholders' equity as shown.
1
FINANCIAL REVIEW
RESULTS OF OPERATIONS
THOMAS & BETTS CORPORATION (THOMAS & BETTS OR THE CORPORATION) ACHIEVED
RECORD SALES AND EARNINGS IN 1997. Net sales for 1997 increased to $2,114.7
million, 7% above 1996 sales of $1,985.1 million, reflecting strong volume
gains and business acquisitions made during 1997 and 1996. Negative currency
translations effectively reduced 1997 reported sales by approximately one
percentage point. As in the two prior years, about one-quarter of Thomas &
Betts sales came from sales outside the U.S.
Net sales for 1996 increased 15%, or $251.8 million, from 1995. Sales
growth from expanding the Corporation's existing businesses, coupled with
acquisitions, accounted for the majority of the growth. Particularly
significant was the acquisition of Amerace Corporation (Amerace) in January
1996, accounted for as a purchase. The acquisition of Augat Inc. in December
1996, the largest acquisition in the Corporation's history, was accounted for
as a pooling of interests and resulted in financial results of Augat being
combined with those of the Corporation for all periods presented.
Electrical Construction and Maintenance Components (Electrical) segment
sales grew to $764.2 million, or 19% from 1996, following an increase of 12%
in 1996, compared with 1995. Solid economic conditions in North America and
greater market penetration of the segment's product offering resulted in
strong volume increases in that segment in both 1997 and 1996. Volume gains
accounted for over one-half of the segment's growth in those years. Several
product-line acquisitions and favorable pricing also contributed to the
improvements.
Sales in the Electronic/OEM Components (Electronics) segment were
$893.9 million in 1997, or 1% lower than 1996, following an 8% increase in
1996 over 1995. Weaker foreign currencies throughout 1997 negatively impacted
Electronics sales by 3%. Volume increases in a number of product lines in
1997 were offset by anticipated declines in certain product lines, primarily
automotive-related. Pricing in the segment declined slightly in 1997 from
1996, and acquisitions contributed a small increase to sales. The 8% gain in
1996 over 1995 was primarily volume-driven, reflecting increased penetration
of the domestic professional electronics market, acquisitions and new
products for original equipment manufacturers (OEMs).
At year-end 1997, Thomas & Betts contributed assets, which generated
1997 sales of $85.9 million, to a joint venture, Exemplar/Thomas & Betts
Electrical Systems, LLC (ET&B). Under terms of the joint venture agreement,
Thomas & Betts owns a 49% interest in ET&B, and has a 100% income interest in
the results generated by its contributed net assets plus a 49% interest in
income generated by jointly developed future business. The Corporation's
investment in ET&B will be accounted for using the equity method. The use of
that accounting method will not affect net results but will reduce net sales,
costs and expenses by the amounts previously attributable to the contributed
assets.
Other Products and Components sales of $456.7 million were 4% higher
than 1996 after having risen 34% in 1996 over 1995. In 1997, gains in heating
and utility component product lines and increased marketing leverage, from
acquisitions of both the Elastimold utility component product lines acquired
with Amerace and the Reznor Europe heating product lines, more than offset
the negative effect of planned phase-outs of low-margin
contract-manufacturing volumes related to divested product lines. The
pronounced sales increase from 1995 to 1996 was primarily due to the addition
of Elastimold.
CONSOLIDATED GROSS MARGIN IMPROVED TO 31.9%, compared with 29.6% and
29.5% in 1996 and 1995, respectively. Excluding the special charges of $13.8
million in 1996 and $2.5 million in 1995, gross margin improved from 30.4% in
1996 and 29.7% in 1995. The 1997 gross margin reflected the positive impact
of restructuring efforts, including the assimilation of Augat operations.
17
Marketing, general and administrative (MG&A) expense was 16.4% of sales
in 1997. Excluding special charges of $19.7 million in 1996 and $1.8 million
in 1995, those expenses were 16.1% and 16.3% of sales in the two earlier
years, respectively. The higher level of MG&A in 1997 was due to increased
marketing expense from a change in the electrical-components channel
U.S.-sales structure, somewhat offset by lower administrative expense
realized from integration of acquired businesses.
The Corporation spent 2.5% of sales on research and development (R&D)
during 1997, versus 2.4% in 1996 and 2.5% in 1995. Most R&D activity took
place in the Electronics segment with efforts in 1997 focused in part on the
Metallized Particle Interconnect (MPI-TM), a next-generation microprocessor
socket for high-end computers and workstations. Amortization expense rose in
both years due to additional amortization of goodwill related to acquisitions.
Thomas & Betts recorded $97.1 million in special charges in 1996,
primarily related to the acquisition and assimilation of Augat. (See
footnotes 3 and 4 to the financial statements.) Included in those charges
were merger expenses, resulting from legal and financial advisory fees and
change-of-control payments, and provisions for restructured operations
related to the integration of Augat and initiatives to optimize operations
and improve future profitability.
The 1995 provision for restructured operations was recorded at Augat
for closing redundant or excess facilities, abandoning excess equipment,
discontinuing inventory in low-margin product lines and paying employee
severance costs.
EARNINGS FROM OPERATIONS IN 1997 INCREASED 17% from 1996 (excluding
special charges) and 25% in 1996 versus 1995 (excluding restructuring
charges). Earnings from operations of Electrical, excluding special charges,
rose 24% in 1997 over 1996, and 17% in 1996 over 1995, due to higher sales
volumes and wider operating margins resulting from restructuring programs.
Earnings from operations of Electronics improved 10% and 9% year over year
for 1997 and 1996, respectively, if special charges are excluded. The 1997
improvement reflected the benefits of restructuring and the Augat
integration, while the increase in 1996 was attributed to higher sales. Other
Products and Components earnings from operations declined 8% in 1997 versus
1996, compared with a 54% increase in 1996 versus 1995, excluding special
charges. Volume declines in certain markets impacted the 1997 gross margin in
that segment, while 1996 results reflected the acquisition of Amerace, higher
sales volume, favorable sales mix and lower commodity costs.
Other expense-net for 1997 decreased from 1996's level due to the
absence of special charges related to the Augat merger. Excluding the special
charges of $6.1 million, other expense in 1997 rose $1.3 million, compared
with 1996. The increase was primarily due to greater interest expense
resulting from higher-average net-debt levels that offset increased equity
income. Other expense-net in 1996 rose $14.5 million from 1995 as a result of
the special charges and higher interest expense on increased debt from the
acquisition of Amerace, offset in part by higher equity income.
The effective income tax rate for 1997 of 31.0% was 3.1 points below
the rate for 1996 and 0.4 points lower than the 1995 rate. The higher 1996
rate was due to non-deductible, merger-related special charges associated
with the Augat acquisition. Thomas & Betts has been able to maintain a tax
rate below the statutory rate because of tax benefits derived from operations
in Puerto Rico and other proactive tax initiatives.
NET EARNINGS IN 1997 OF $154.9 MILLION WERE THEIR HIGHEST EVER,
significantly greater than the 1996 and 1995 levels of $59.9 million and
$88.5 million, respectively, primarily due to the special charges recorded in
each of those years, as well as higher volumes and wider margins. Net
earnings in 1996 included special charges of $97.1 million ($65.6 million
after tax, $1.23 per share), while 1995 included a $23.0 million ($15.3
million after tax, $0.29 per share) restructuring charge recorded by Augat.
Excluding the impact of those charges, net earnings in those
18
years would have been $125.5 million in 1996 and $103.8 million in 1995.
Comparing year-to-year results, excluding the impact of charges, 1997 net
earnings were 23% higher than those in 1996, and 1996 net earnings were 21%
above those in 1995.
Effective for 1997, Thomas & Betts began reporting earnings per share
(EPS) on both basic and diluted bases in compliance with Statement of
Financial Accounting Standard No. 128. Previously, in accordance with the
earlier accounting standard, the Corporation reported "simple" EPS. The
impact of adopting the new accounting standard was minimal for all years
restated, with no change to basic EPS and only a 1 CENTS or 2 CENTS decrease
from simple EPS to diluted EPS, reflecting slight dilutive effects from
assumed employee-stock-option conversions. Excluding the effects of the
special charges discussed above, EPS (both on basic and diluted bases)
increased 20% in 1997 over 1996, and 19% in 1996 over 1995. Including the
special charges, the changes were 151% and (33%), respectively.
In 1997, the Financial Accounting Standards Board issued Statements No.
130, "Reporting Comprehensive Income," and No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Both statements are
effective in 1998, and both will require additional interim or annual
financial disclosure without changing the overall financial results of the
Corporation. Although Thomas & Betts has not concluded what presentation
changes will be required, if any, it does not currently believe that adoption
of those standards will significantly affect the characterization of its
business.
LIQUIDITY AND FINANCIAL RESOURCES
CASH PROVIDED BY OPERATING ACTIVITIES INCREASED IN 1997 due to higher net
earnings for the year and the sale of $145.2 million of trade accounts
receivable under an asset-securitization program commenced in December 1997.
Those sources funded capital expenditures, dividends, restructuring
expenditures provided for predominantly in 1996 and net working-capital
levels required to support higher sales.
CAPITAL SPENDING OF $116.7 MILLION IN 1997 ROSE 8% FROM 1996'S LEVEL,
but spending in 1996 decreased 18% from 1995, a year in which the Corporation
undertook a major spending program on distribution facilities. Projects in
1997 included restructuring-related spending to consolidate the operations of
recent acquisitions, expansion of production capabilities, efficiency-related
improvements and new systems software. Projects in 1996 included completion
of the central distribution center, continued expansion of Mexican operations
and restructuring-related spending at Augat. Projects in 1995 included
spending on three state-of-the-art distribution facilities, expansion of
production capabilities, equipment and efficiency-related improvements.
Management expects capital expenditures to be slightly higher in 1998
than the normal run rate as the Corporation undertakes numerous information
technology projects.
THE CORPORATION IS ACTIVELY ENGAGED IN A CORPORATE-WIDE PROGRAM TO
ENSURE ITS COMPUTER SYSTEMS ARE YEAR 2000 COMPLIANT. That effort included a
comprehensive review of automated systems in use throughout the Corporation.
In several significant areas, the Corporation is currently installing new
systems with greatly enhanced functionality that also solve potential Year
2000 problems in those areas. Other actions have or will include
software-release upgrades and modifications to coding in software that will
not be replaced. A significant portion of the cost of the new systems will be
capitalized. Management does not expect the total amounts, to be expended
over the next two years for both enhanced functionality and Year 2000
compliance, to be material to its financial position or results of
operations. Virtually all systems are expected to be Year 2000 compliant by
year-end 1998.
THOMAS & BETTS COMPLETED SIX ACQUISITIONS DURING 1997 for total
consideration of approximately $62 million, consisting of cash and 793,560
shares of the Corporation's common stock. Those acquisitions were: in
January, Taylor Wiring Duct, a major supplier
19
of wiring duct and accessories to the industrial OEM market; in March, Marr
Group Limited, a manufacturer of twist-on electrical-wire connectors, plastic
electrical- outlet boxes and box connectors; in April, the assets of
Electro-Resources Corporation of Texas, which sold under the name
TANCO-Registered Trademark-, a supplier of electrical enclosures; in June,
Electroline Manufacturing Company, a manufacturer of electrical conduit
fittings; in July, Patriot Products, Inc., a maker of in-floor duct systems;
and, also in July, Diamond Communication Products, Inc., a manufacturer of
drop hardware for the worldwide communications industry. The Taylor, Marr,
Tanco and Patriot acquisitions were accounted for using the purchase method
of accounting. The acquisitions of Electroline and Diamond were accounted for
as immaterial poolings of interests. Those six acquisitions represented $57.6
million of 1997 sales.
Thomas & Betts closed eight acquisitions in 1996, the two largest of
which were Augat and Amerace. In December 1996, approximately 12.8 million
shares of the Corporation's common stock were exchanged for all of the
outstanding common stock of Augat in a transaction valued at approximately
$570 million. In January 1996, the Corporation acquired all the outstanding
stock of Amerace for $212.5 million in cash.
Thomas & Betts makes selective acquisitions to broaden its business
worldwide. The Corporation currently is evaluating several acquisition
possibilities and expects to do so from time to time in the future. The
Corporation may finance any such acquisitions that it consummates through the
issuance of private or public debt or equity, internally generated funds or a
combination of those sources.
DEBT DECLINED $176.1 MILLION IN 1997 FROM 1996'S LEVEL, reflecting the
application of cash generated from operations and proceeds from the sale of
accounts receivable. Debt increased by $277.3 million in 1996 from 1995's
level due to the issuance of debt in early 1996 to finance the Amerace
acquisition. Pretax interest coverage grew from 3.6 times in 1996 (excluding
special charges) to 4.0 times in 1997.
In June 1997, Thomas & Betts initiated a commercial paper program,
which is backed by a $500.0 million revolving-credit agreement. At year-end,
$79.9 million of commercial paper was outstanding. Management believes that
its external financial resources and internally generated funds are
sufficient to meet the Corporation's capital needs for the foreseeable future.
CASH AND SHORT-TERM INVESTMENTS DECLINED $66.0 MILLION in 1997
primarily due to repatriation of funds on a tax-effective basis. Thomas &
Betts maintains a portfolio of marketable securities and cash equivalents in
Puerto Rico, which at year-end 1997 was valued at $77.7 million. Although
those investments represent currently available funds, they remain invested
so that the Corporation can obtain favorable, partially tax-exempt status on
earnings generated in Puerto Rico.
OTHER MATTERS
Thomas & Betts is committed to complying with all applicable laws and to
pursuing actions and practices that promote a safer, healthier environment.
The Corporation expended approximately $3.0 million, $2.0 million and $1.5
million for environmental remediation and corrective matters for years 1997,
1996 and 1995, respectively, with payments for Superfund-related sites being
less than $0.7 million in any year.
FORWARD-LOOKING STATEMENTS
Statements in this financial review or made by management of the Corporation
that contain more than historical information may be considered to be
"forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which are subject to many risks
and uncertainties. Actual results may vary materially from those expressed in
the forward-looking statements because of uncertainties identified in the
Corporation's latest Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
20
CONSOLIDATED STATEMENTS OF EARNINGS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
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- -------------------------------------------------------------------------------
In thousands (except per share data) 1997 1996 1995
- ------------------------------------------ ---------- ---------- ----------
NET SALES................................. $2,114,718 $1,985,145 $1,733,368
---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales............................. 1,440,303 1,398,031 1,221,463
Marketing, general and administrative..... 346,046 339,124 283,861
Research and development.................. 51,896 47,229 44,083
Amortization of intangibles............... 17,355 15,323 11,314
Merger expense............................ -- 30,558 --
Provision for restructured operations..... -- 24,501 18,700
---------- ---------- ----------
1,855,600 1,854,766 1,579,421
---------- ---------- ----------
Earnings from operations.................. 259,118 130,379 153,947
Other expense -- net...................... 34,682 39,501 25,017
---------- ---------- ----------
Earnings before income taxes.............. 224,436 90,878 128,930
Income taxes.............................. 69,575 31,010 40,428
---------- ---------- ----------
NET EARNINGS.............................. $ 154,861 $ 59,868 $88,502
---------- ---------- ----------
NET EARNINGS PER COMMON SHARE:
Basic................................... $ 2.83 $ 1.13 $ 1.69
Diluted................................. $ 2.81 $ 1.12 $ 1.68
Average shares outstanding:
Basic................................... 54,717 53,059 52,494
Diluted................................. 55,090 53,512 52,722
Cash dividends declared per share......... $ 1.12 $ 1.12 $ 1.12
- ------------------------------------------ ---------- ---------- ----------
- ------------------------------------------ ---------- ---------- ----------
See Notes to Consolidated Financial Statements.
21
CONSOLIDATED BALANCE SHEETS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
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- -------------------------------------------------------------------------------
December 28, December 29,
In thousands 1997 1996
- -------------------------------------------- ------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................... $ 43,872 $ 126,355
Marketable securities........................ 52,382 35,940
Receivables -- net........................... 273,565 361,511
Inventories.................................. 373,977 363,306
Deferred income taxes........................ 43,452 62,121
Prepaid expenses............................. 8,902 7,818
---------- ----------
Total Current Assets......................... 796,150 957,051
PROPERTY, PLANT AND EQUIPMENT
Land......................................... 21,670 16,944
Buildings.................................... 219,381 217,792
Machinery and equipment...................... 833,540 765,240
---------- ----------
1,074,591 999,976
Less accumulated depreciation................ 504,829 460,032
---------- ----------
569,762 539,944
INTANGIBLE ASSETS -- NET..................... 505,225 519,276
INVESTMENTS IN UNCONSOLIDATED COMPANIES...... 127,703 76,368
OTHER ASSETS................................. 39,835 38,598
---------- ----------
TOTAL ASSETS................................. $2,038,675 $2,131,237
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable................................ $ 25,997 $ 49,365
Current maturities of long-term debt......... 5,256 15,690
Accounts payable............................. 208,056 190,184
Accrued liabilities.......................... 140,584 189,961
Income taxes................................. 44,514 35,372
Dividends payable............................ 15,401 11,328
---------- ----------
Total Current Liabilities.................... 439,808 491,900
LONG-TERM LIABILITIES
Long-term debt............................... 502,813 645,096
Other long-term liabilities.................. 92,206 100,676
Deferred income taxes........................ 26,467 25,183
SHAREHOLDERS' EQUITY
Common stock................................. 316,922 284,639
Retained earnings............................ 668,189 569,869
Cumulative translation adjustment............ (3,523) 15,084
Other........................................ (4,207) (1,210)
---------- ----------
Total Shareholders' Equity................... 977,381 868,382
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $2,038,675 $2,131,237
- --------------------------------------------- ---------- ----------
- --------------------------------------------- ---------- ----------
See Notes to Consolidated Financial Statements.
22
CONSOLIDATED STATEMENTS OF CASH FLOWS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
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- ----------------------------------------------------------------------------------------
In thousands 1997 1996 1995
- ------------ --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings............................................ $ 154,861 $ 59,868 $ 88,502
Adjustments:
Depreciation and amortization......................... 95,324 91,581 76,495
Provision for restructured operations................. -- 24,501 18,700
Accrued merger and other special charges.............. -- 51,145 4,300
Deferred income taxes................................. 19,771 (26,728) 7,782
Changes in operating assets and liabilities, net:
Receivables......................................... 79,066 (63,147) (10,980)
Inventories......................................... (17,900) (29,159) (16,984)
Accounts payable.................................... 21,471 22,386 (7,118)
Accrued liabilities................................. (60,866) (30,847) (26,977)
Income taxes payable................................ 9,316 20,789 (5,681)
Other................................................. (11,231) 492 (5,615)
--------- --------- ---------
Net cash provided by operating activities............... 289,812 120,881 122,424
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and investments in businesses.............. (19,326) (256,390) (19,983)
Purchases of property, plant and equipment.............. (116,719) (107,807) (131,442)
Proceeds from sale of property, plant and equipment..... 6,098 37,535 4,993
Marketable securities acquired.......................... (81,365) (26,636) (50,925)
Proceeds from matured marketable securities............. 64,807 51,387 49,500
Other................................................... -- -- 4,502
--------- --------- ---------
Net cash used in investing activities................... (146,505) (301,911) (143,355)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in borrowings with original
maturities less than 90 days.......................... (6,850) (16,798) 46,938
Proceeds from long-term debt and other borrowings....... 170,412 386,437 24,789
Repayment of long-term debt and other borrowings........ (354,394) (95,137) (31,658)
Stock options exercised................................. 25,945 12,812 10,194
Cash dividends paid..................................... (56,898) (48,305) (47,138)
--------- --------- ---------
Net cash provided by (used in) financing activities..... (221,785) 239,009 3,125
--------- --------- ---------
EFFECT OF EXCHANGE-RATE CHANGES ON CASH................. (4,005) (6,779) 2,755
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... (82,483) 51,200 (15,051)
Cash and cash equivalents -- beginning of year.......... 126,355 75,155 90,206
--------- --------- ---------
Cash and cash equivalents -- end of year................ $ 43,872 $126,355 $ 75,155
- -------------------------------------------------------- --------- --------- ---------
- -------------------------------------------------------- --------- --------- ---------
Cash payments for interest............................. $ 54,185 $ 37,359 $ 32,176
Cash payments for taxes................................ $ 40,480 $ 29,066 $ 36,699
See Notes to Consolidated Financial Statements.
23
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
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- -------------------------------------------------------------------------------
Common Stock Additional Cumulative
------------------ Paid-in Retained Translation Treasury
In thousands Shares Amount Capital Earnings Adjustment Stock
- ---------------------------------------- ------ -------- --------- -------- ----------- --------
Balance at January 1, 1995 51,673 $ 25,837 $ 230,953 $516,537 $ 19,749 $(2,719)
------ -------- --------- -------- -------- -------
Immaterial poolings of interests........ 656 328 1,616 2,309 -- --
Net earnings............................ -- -- -- 88,502 -- --
Dividends declared...................... -- -- -- (47,380) -- --
Stock options and incentive awards...... 436 218 10,879 -- -- (685)
Translation adjustments................. -- - -- -- 4,506 --
- ---------------------------------------- ------ -------- --------- -------- ----------- --------
Balance at December 31, 1995............ 52,765 26,383 243,448 559,968 24,255 (3,404)
- ---------------------------------------- ------ -------- --------- -------- ----------- --------
Reincorporation......................... (107) 240,044 (243,448) -- -- 3,404
Net earnings............................ -- -- -- 59,868 -- --
Dividends declared...................... -- -- -- (48,412) -- --
Stock options and incentive awards...... 587 16,263 -- -- -- --
Business acquisitions and investments... 58 1,949 -- (39) -- --
Change in subsidiaries' year-end........ -- -- -- (1,516) -- --
Translation adjustments................. -- -- -- -- (9,171) --
- ---------------------------------------- ------ -------- --------- -------- ----------- --------
Balance at December 29, 1996............ 53,303 284,639 -- 569,869 15,084 --
- ---------------------------------------- ------ -------- --------- -------- ----------- --------
Immaterial poolings of interests........ 731 2,728 -- 4,430 -- --
Net earnings............................ -- -- -- 154,861 -- --
Dividends declared...................... -- -- -- (60,971) -- --
Stock options and incentive awards...... 910 25,945 -- -- -- --
Business acquisitions and investments... 62 3,610 -- -- -- --
Translation adjustments................. -- -- -- -- (18,607) --
- ---------------------------------------- ------ -------- --------- -------- ----------- --------
Balance at December 28, 1997............ 55,006 $316,922 $ -- $668,189 $(3,523) $ --
- ---------------------------------------- ------ -------- --------- -------- ----------- --------
- ---------------------------------------- ------ -------- --------- -------- ----------- --------
Preferred Stock: Authorized 500,000 shares, no par value. None issued to
date, but 300,000 shares are reserved for the Corporation's
Shareholder Rights Plan.
Common Stock: Authorized 80,000,000 shares, no par value.
- -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 NATURE OF OPERATIONS
Thomas & Betts Corporation (the Corporation) is a leading manufacturer of
connectors and components for worldwide electrical and electronics markets.
With international headquarters in Memphis, Tenn., the Corporation operates
more than 100 manufacturing and distribution facilities in 20 countries
around the globe. The Corporation designs, manufactures and sells components
that allow others to assemble electrical and electronic systems. The
Corporation's products include: electromechanical components and subsystems
that provide solutions for information processing, communications and
automotive industries in North America, Europe and Asia; electrical
connectors and accessories for industrial, commercial, utility, residential
and project construction, renovation and maintenance applications primarily
in North America; transmission poles, towers and industrial lighting products
for domestic and international customers; and heating units and accessories
for mechanical and refrigeration markets in North America and Europe.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its wholly owned domestic and foreign subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Corporation uses the equity method of accounting for its investments in
20-to-50-percent-owned companies. Under generally accepted accounting
principles (GAAP), there is a presumption that the equity method should be
used to account for those investments. If the Corporation were to determine
that it no longer
24
had the ability to exercise significant influence over the operating and
financial policies of those companies, GAAP would require the Corporation
to use the cost method rather than the equity method to account for those
investments. The Corporation regularly monitors its relationships with
those companies.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
FISCAL YEAR
The Corporation's fiscal year ends on the Sunday closest to the end of the
calendar year. Results for 1997, 1996 and 1995 are for the 52 weeks ended
December 28, 1997, December 29, 1996 and December 31, 1995, respectively.
In 1996, the Corporation's Augat Inc. (Augat) subsidiary changed the
fiscal year of its European and Far Eastern subsidiaries from November 30
to the Corporation's fiscal year-end, thus eliminating a one-month
reporting lag. That change resulted in a charge against retained earnings
of $1.5 million.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS
OF CREDIT RISK
When deemed appropriate, the Corporation enters into forward
foreign-exchange contracts to hedge foreign-currency-transaction exposures
for periods consistent with those committed exposures. Those contracts are
with major financial institutions and may at times be concentrated with
certain counterparties. The creditworthiness of counterparties is subject
to continuing review, and full performance by those counterparties is
anticipated. Foreign-exchange contracts generally have maturities that do
not exceed one year.
Currency hedging reduces the impact of foreign-exchange-rate movements
on the Corporation's operating results, as gains and losses on contracts are
offset by losses and gains on any assets, liabilities and transactions being
hedged. A high correlation is maintained between the transactions and the
hedges to minimize currency risk. In most cases, both the exposed
transactions and the hedging contracts are marked to market monthly with
gains and losses included in earnings as other income or expense. Gains and
losses on certain contracts that hedge specific foreign-currency denominated
commitments are deferred and recognized in the period in which the
transaction is completed. Unrealized gains are reported as prepaid expenses,
and unrealized losses are reported as accrued liabilities.
As of December 28, 1997, and December 29, 1996, the Corporation had
outstanding contracts, all maturing within 240 days, to buy $22.5 million and
sell $10.7 million, respectively, of principally Canadian, Japanese and
European currencies for U.S. dollars. Deferred contract gains and losses at
December 28, 1997, and December 29, 1996, were not significant.
The Corporation is exposed to risk from fluctuating prices for
commodities used to manufacture its products, primarily copper, zinc,
aluminum, gold and resins. Some of that risk is hedged through the use of
futures and swap contracts that fix the price the Corporation will pay for
the commodity. Cost of sales reflects the commodity cost, including the
effects of the commodity hedge. The total quantity of commodity contracts
purchased is kept at least 20% below the actual quantity of commodities
expected to be purchased for production. As of December 28, 1997, the
Corporation had $22.3 million of those contracts outstanding, maturing
through December 1998. The maturity of the contracts highly correlates with
the actual purchases of the commodity. The amounts paid or received are
calculated based on the notional amounts under the contracts. The use of such
commodity contracts effectively protects the Corporation against changes in
the price of the commodity to the extent of the notional amount under the
contract. As of December 28, 1997, the net unrealized loss on those commodity
contracts was $1.7 million. That value will change as commodity prices change
and will be recorded only at the time the underlying commodity is actually
purchased.
Credit risk, with respect to trade receivables, is limited due to the
large number of customers comprising the Corporation's customer base and
their dispersion across many different industries and geographic areas.
The Corporation will, on occasion, enter into interest-rate swaps to
reduce the impact of changes in interest rates on portions of its
floating-rate debt. The rate differential paid or received under those
agreements is accrued monthly, consistent with the terms of the agreements
and market interest rates. Those agreements are with financial institutions
having at least a single-A credit rating, which minimizes non-performance
risk. As of December 28, 1997, the Corporation had no outstanding
interest-rate swaps.
RECEIVABLES
Receivables are stated net of allowance for doubtful accounts and cash
discounts of $11.4 million at December 28, 1997, and $8.7 million at
December 29, 1996.
In December 1997, the Corporation entered into an asset-securitization
agreement. The agreement permits the Corporation to continually sell accounts
receivable through December 19, 2002, to a maximum purchasers' investment of
$150.0 million.
25
That maximum investment is subject to decrease based on the level of
eligible accounts receivable and restrictions on concentrations of
receivables. In December 1997, the Corporation sold a fractional ownership
interest in a defined pool of trade accounts receivable for approximately
$145.2 million. That transaction has been accounted for as a sale of assets
under the provisions of Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The sold accounts receivable are reflected
as a reduction of receivables in the accompanying consolidated balance sheet.
The discount rate on the receivables sold in December 1997 was approximately
6.10%.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for approximately 60% of the
Corporation's inventories, and the first-in, first-out (FIFO) method for the
remainder of inventories. The LIFO value of inventories held at December 28,
1997, approximated their current cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repair are charged to expense as incurred. Significant
renewals and betterments that extend the lives of assets are capitalized.
Depreciation is computed principally on the straight-line method over the
estimated useful lives of the assets, which range principally from 10 to 25
years for land improvements, 5 to 45 years for buildings, and 3 to 15 years
for machinery and equipment.
INTANGIBLE ASSETS
Intangible assets consist principally of the excess of cost over the fair
value of net assets (goodwill) acquired in business combinations accounted
for as purchases. Those assets are being amortized on a straight-line basis
over various periods not exceeding 40 years. Goodwill is reevaluated when
business events and circumstances indicate that the carrying amount may not
be recoverable. Reevaluation is based on projections of related,
undiscounted, future cash flows. As of December 28, 1997, and December 29,
1996, accumulated amortization of intangible assets was $93.6 and $71.6
million, respectively.
INCOME TAXES
The Corporation uses the asset and liability method of accounting for income
taxes. That method recognizes the expected future tax consequences of
temporary differences between the book and tax bases of assets and
liabilities, and provides a valuation allowance based on a
"more-likely-than-not" standard.
Undistributed earnings of foreign subsidiaries held for reinvestment in
overseas operations amounted to $83.1 million at December 28, 1997.
Additional U.S. income taxes may be due upon remittance of those
earnings (net of foreign tax credits resulting from the distribution), but
determining the amount of any such additional taxes is impractical.
SHAREHOLDERS' EQUITY
In May 1996, the Corporation's state of incorporation was changed from New
Jersey to Tennessee. The reincorporation resulted in each outstanding share
of the Corporation's common stock, par value of $0.50, being converted into
one share of common stock, no par value. Tennessee law requires shares
repurchased by a corporation to be returned to the status of authorized but
unissued shares; accordingly, the shares of common stock previously held in
treasury were canceled. There was no change in total shareholders' equity as
a result of the elimination of par value and treasury stock.
Shareholders' equity included increases of $0.7 million at December 28,
1997, and $0.8 million at both December 29, 1996, and December 31, 1995,
which related to unrealized gains on marketable securities and decreases of
$4.9 million, $2.0 million and $0.5 million at December 28, 1997, December
29, 1996, and December 31, 1995, respectively, related to non-vested
restricted stock awards. Compensation expense, related to the restricted
stock awards, is recognized over the vesting period.
STOCK PURCHASE RIGHTS
On December 3, 1997, the Corporation's board of directors declared a dividend
of one preferred-share purchase right for each outstanding share of common
stock of the Corporation. The dividend was payable to shareholders of record
as of December 15, 1997. The rights are attached to and automatically trade
with the outstanding shares of the Corporation's common stock.
The rights will become exercisable only in the event that any person or
group of affiliated persons becomes a holder of 15% or more of the
Corporation's outstanding common stock, or commences a tender exchange offer,
which, if consummated, would result in that person's or affiliated persons'
owning at least 15% of the Corporation's outstanding common stock. Once the
rights become exercisable, they entitle all shareholders, other than an
acquiring person, to purchase one two-hundredths of a share of preferred
stock, which entitles the holder to purchase, for $200, a number of shares of
common stock having a market value of twice the exercise price. In addition,
at any time after any person has become an acquiring person, but before any
person becomes the beneficial owner of 50% or more of the outstanding common
stock, the board of directors may exchange all or part of the rights (other
than rights beneficially owned by an acquiring person and certain affiliated
persons) for shares of common stock at an exchange ratio of one share of
common stock per right. The rights may be redeemed at a price of $.005 per
right at any time prior to their expiration on December 15, 2000.
26
EARNINGS PER SHARE
During the fourth quarter of 1997, the Corporation adopted SFAS No. 128,
"Earnings Per Share." The earnings-per-share (EPS) information in prior
periods has been restated to conform to such presentation.
Basic EPS is computed by dividing net earnings by the weighted-average
number of shares of common stock outstanding during the year. Diluted EPS is
computed by dividing net earnings by the sum of (1) the weighted-average
number of shares of common stock outstanding during the period and (2) the
dilutive effect of the assumed exercise of stock options using the treasury
stock method.
The following is a reconciliation of the numerators and denominators of
the per share computations:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
In thousands
(except per share data) 1997 1996 1995
- ----------------------- -------- ------- -------
Net earnings $154,861 $59,868 $88,502
- ----------------------- -------- ------- -------
Basic -- Average shares
outstanding 54,717 53,059 52,494
Basic EPS $ 2.83 $ 1.13 $ 1.69
- ----------------------- -------- ------- -------
- ----------------------- -------- ------- -------
Diluted -- Average shares
outstanding 54,717 53,059 52,494
- ----------------------- -------- ------- -------
Plus assumed exercise
of stock options 373 453 228
- ----------------------- -------- ------- -------
55,090 53,512 52,722
- ----------------------- -------- ------- -------
Diluted EPS $ 2.81 $ 1.12 $ 1.68
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed or
capitalized, as appropriate. Remediation costs that relate to an existing
condition caused by past operations are accrued, on an undiscounted basis,
when it is probable that those costs will be incurred and can be reasonably
estimated based on evaluations of currently available facts related to each
site.
CASH FLOW INFORMATION
Cash equivalents consist of investments, with maturities at date of purchase
of less than 90 days, that have a low risk of change in value due to interest
rate changes. Foreign-currency cash flows have been converted to U.S. dollars
at appropriately weighted-average exchange rates or the exchange rates in
effect at the time of the cash flows, where determinable.
3 MERGERS, ACQUISITIONS AND DIVESTITURES
AUGAT INC.
On December 11, 1996, the Corporation acquired all of the outstanding
common stock of Augat Inc. in exchange for 12,821,337 shares of the
Corporation's common stock. In addition, options to acquire Augat common
stock were converted to options to acquire 791,400 shares of the
Corporation's common stock.
The acquisition was accounted for as a pooling of interests, and the
Corporation's financial statements were restated to include the results of
Augat for all periods presented, except for dividends per share, which
reflect the Corporation's historical per share amount.
In the fourth quarter of 1996, the Corporation recorded special charges
totaling $97.1 million. The charges provided for merger expenses, including
legal and financial advisory fees and change-of-control payments;
restructuring expenses related to both the Corporation's existing operations
and the operations of Augat (see Note 4); adjustments to accounting estimates
of Augat's liabilities, primarily environmental, litigation, warranty and
employee-benefit accruals, and provisions for inventory obsolescence; the
cost of index-put options purchased and held through the merger's
stock-pricing period; and other one-time expenses, including certain
termination benefits related to the Corporation's executive retirement plan
and previously idled facility charges. The charges were recorded in the
statement of earnings as follows: net sales, $2.4 million; cost of sales,
$13.8 million; marketing, general and administrative, $19.7 million; merger
expense, $30.6 million; provision for restructured operations, $24.5 million;
and other expense, $6.1 million.
AMERACE CORPORATION
On January 2, 1996, the Corporation acquired all of the outstanding stock of
Amerace Corporation for $212.5 million in cash. That acquisition was
accounted for using the purchase method. The aggregate purchase price was
allocated to the acquired assets of Amerace based on their respective fair
values, with the excess of approximately $150 million allocated to goodwill.
Results of operations of Amerace after the acquisition date are included
in the Consolidated Statements of Earnings. If the acquisition and its
financing had occurred on January 2, 1995, management estimates that on an
unaudited pro-forma basis, net sales, net earnings and net earnings per share
would have been $1,890.4 million, $93.9 million and $1.79 per share,
respectively, for the year-ended December 31, 1995. Those pro-forma results
have been prepared for comparative purposes only and are not necessarily
indicative of the combined results of operations that would have resulted had
the acquisition taken place on January 2, 1995, nor are they necessarily
indicative of results of operations for any future period. On May 14, 1996,
the Corporation sold most of the assets of the Hendrix Wire and Cable
business of Amerace Corporation. No gain or loss was incurred as a result of
that sale.
OTHER
The Corporation completed six acquisitions during 1997 for total
consideration of $62.0 million, consisting of cash and 793,560 shares of the
Corporation's common stock. Two of those acquisitions were accounted for as
immaterial poolings of interests, and
27
the results of those acquisitions have been included in the Corporation's
results as of the beginning of 1997 without restating prior years' results.
The remaining four acquisitions were accounted for under the purchase method
of accounting. The six acquisitions represented approximately $57.6 million
of sales reported by the Corporation in 1997. The excess of the purchase
price over the fair value of the acquired assets in the purchase acquisitions
was approximately $14.6 million and has been recorded as goodwill.
On December 28, 1997, the Corporation completed the creation of a joint
venture with Exemplar Manufacturing Company, a privately owned business based
in Ypsilanti, Michigan, to manufacture and sell power distribution, battery
cable and wiring systems to the U.S. automotive industry. In exchange for a
49% interest in the ownership of the joint venture, the Corporation
contributed net assets with a carrying value of approximately $41.0 million;
no gain or loss was recognized as a result of that transaction. The
joint-venture agreement provides that each venturer retains a 100% income
interest in earnings generated by its respective contributed business; income
from jointly developed business will be allocated in accordance with the
ownership percentages. Sales generated in 1997 by the assets contributed by
the Corporation to that joint venture were $85.9 million.
The Corporation completed six acquisitions during 1996, in addition to
Augat and Amerace, for a total of approximately $46.0 million, consisting of
cash and 57,714 shares of the Corporation's common stock. All were accounted
for using the purchase method of accounting, and represented approximately
$37.0 million of sales reported by the Corporation in 1996. The excesses of
the purchase prices over the fair values of the acquired assets in the above
acquisitions were approximately $26.0 million, recorded as goodwill.
In 1995, the Corporation completed five acquisitions for approximately
$48.0 million, consisting of cash and 657,810 shares of the Corporation's
common stock. Three acquisitions were accounted for using the purchase method
of accounting, and two acquisitions were accounted for as immaterial poolings
of interests without restating prior years' results. Businesses acquired in
1995 represented approximately $39.0 million of sales reported by the
Corporation in 1995.
On August 10, 1994, the Corporation completed the purchase of a minority
interest (29.1% of the outstanding common stock representing 23.55% of the
voting common stock) in Leviton Manufacturing Co., Inc., a leading U.S.
manufacturer of wiring devices, for approximately $51.0 million in cash and
common stock. Leviton's chief executive officer opposed the Corporation's
acquisition of the stock. The chief executive officer, with his wife, owns
approximately 50.5% of Leviton's outstanding common stock (76.45% of
Leviton's voting common stock) through a voting trust (a majority sufficient
for the approval of all corporate actions that Leviton might undertake;
however, the majority is not sufficient to permit either federal-income-tax
consolidation or pooling-of-interests accounting treatment in a merger). The
remainder of the outstanding common stock, all of which is non-voting, is
owned by approximately 19 other Leviton family members. The opposition of the
chief executive officer to the Corporation's investment has resulted in
litigation between Leviton and the Corporation, consisting of the
Corporation's proceeding in Delaware in February 1995 to compel Leviton to
make additional financial and other information available to the Corporation,
and of Leviton's subsequent action against the Corporation and other parties
in New York seeking damages and other relief in connection with the
transaction in which the Corporation acquired its Leviton investment. The
Corporation does not have and has not sought representation on Leviton's
board of directors, which would be opposed by Leviton's chief executive
officer, and does not receive copies of Leviton's board minutes.
Notwithstanding the existence of an adversarial relationship with the
controlling shareholder of Leviton, the Corporation has developed
relationships with certain key members of Leviton management and believes
that those relationships and other factors support management's conclusion
that the Corporation has the ability to exercise significant influence over
Leviton's financial and operating policies. The Corporation owns more than
20% of Leviton's voting stock, and there are no restrictions on the
Corporation's ability to exercise the attributes of ownership (situations
have not arisen to date in which the Corporation has had an opportunity to
vote its Leviton shares in a matter that would demonstrate significant
influence over Leviton's financial and operating policies). In addition,
because the Corporation is a non-family shareholder, the Corporation believes
that it has a greater ability than other shareholders to challenge actions by
Leviton management that the Corporation considers adverse to shareholders'
interests. Senior management responsible for Leviton's day-to-day operations
and operating and financial policies has engaged in an ongoing dialogue over
the past 20 months with the Corporation and has acknowledged that the
Corporation's presence as a Leviton shareholder has influenced the manner in
which Leviton conducts business. Further, Leviton has taken certain actions,
following discussions with the Corporation, which have been consistent with
the Corporation's requests and suggestions. The Corporation's equity in the
earnings of Leviton has been typically less than 5% and, of late, never more
than 7% of the Corporation's net income before special charges and typically
less than 7% and, of late, never more than 9% of the Corporation's net income
after special charges. Should the Corporation
28
determine that it no longer has the ability to influence the operating
and financial policies of Leviton, the Corporation, in compliance with GAAP,
will adopt the cost method on a prospective basis.
4 RESTRUCTURING
During the fourth quarter of 1996, the Corporation recorded a restructuring
charge of $24.5 million relating to the integration of Augat and initiatives
affecting Augat's and other of the Corporation's operations. Restructuring
initiatives included the closure of Augat's corporate-headquarters facility
in Mansfield, Mass., and redundant non-U.S. administrative facilities, as
well as the rationalization of the combined sales forces and manufacturing
operations. With respect to that restructuring charge, the Corporation has
expended $14.6 million for cash severance and other employee-benefit costs
and $0.7 million for other non-cash losses through December 1997, with $3.3
million remaining for cash-related activities and $5.9 million remaining for
non-cash losses due to the disposal of property and equipment associated with
closed facilities. Those restructuring actions are expected to be completed
by the end of the third quarter of 1998.
In the fourth quarter of 1995, Augat recorded a restructuring charge of
$18.7 million for redundant or excess facilities and equipment being closed
or abandoned, inventory in low-margin product lines to be discontinued and
employee-severance and benefit costs.
Management believes that reserves established by the 1996 and 1995
restructuring charges are adequate for the purposes for which they were
established.
5 INCOME TAXES
The components of earnings before income taxes were as follows:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
In thousands 1997 1996 1995
- ---------------------------------------------------------------------
Domestic $179,192 $45,330 $ 83,875
Foreign 45,244 45,548 45,055
- ---------------------------------------------------------------------
Total $224,436 $90,878 $128,930
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
The components of income tax expense were as follows:
- ---------------------------------------------------------------------
In thousands 1997 1996 1995
- ---------------------------------------------------------------------
Current
Federal $32,892 $33,923 $14,250
Foreign 16,217 17,112 15,023
State and local 513 4,982 2,263
- ---------------------------------------------------------------------
Total current 49,622 56,017 31,536
- ---------------------------------------------------------------------
Deferred
Domestic 19,341 (23,682) 7,333
Foreign 612 (1,325) 1,559
- ---------------------------------------------------------------------
Total deferred 19,953 (25,007) 8,892
- ---------------------------------------------------------------------
Income taxes $69,575 $31,010 $40,428
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
The reconciliation between the federal statutory tax rate and the
Corporation's effective tax rate was as follows:
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
Increase (reduction) resulting from:
State tax -- net of federal tax
benefit 0.4 2.3 1.3
Partially tax-exempt income (6.3) (9.4) (4.8)
Goodwill 2.0 4.5 2.4
Merger expenses -- 5.6 --
Change in valuation allowance (1.9) (5.0) (1.4)
Other 1.8 1.1 (1.1)
- --------------------------------------------------------------------------
Effective tax rate 31.0% 34.1% 31.4%
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
The components of the Corporation's net deferred tax asset were as
follows:
DECEMBER 28, December 29,
In thousands 1997 1996
- --------------------------------------------------------------------------
Deferred tax assets
Special-charge-related reserves $ 16,596 $ 33,773
Accrued employee benefits 10,146 10,333
Other accruals 19,504 24,197
Asset reserves 14,845 10,289
Foreign tax-credit and loss
carryforwards 7,644 11,087
Pension benefits 6,569 7,470
Other 4,611 11,206
Valuation allowance (3,373) (10,825)
- --------------------------------------------------------------------------
Net deferred tax assets 76,542 97,530
- --------------------------------------------------------------------------
Deferred tax liabilities
Property, plant and equipment (36,885) (42,044)
Other (22,672) (18,548)
- --------------------------------------------------------------------------
Total deferred tax liabilities (59,557) (60,592)
- --------------------------------------------------------------------------
Net deferred tax asset $16,985 $36,938
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
The valuation allowance for deferred tax assets was decreased by $7.4
million in 1997, $4.3 million due to utilization and $3.1 million due to
expiration of foreign net operating-loss and foreign-tax credit
carryforwards. The remaining valuation allowance at December 28, 1997,
related to foreign net operating loss carryforwards.
6 FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation's financial instruments include cash and cash equivalents,
marketable securities, short-term borrowings, long-term debt, commodity swaps
and foreign-currency contracts. The carrying amounts of those financial
instruments generally approximated their fair values at December 28, 1997,
and at December 29, 1996, except that, based on the borrowing rates currently
available to the Corporation, the fair value of long-term debt was
approximately $519.4 and $664.9 million at December 28, 1997, and at
December 29, 1996, respectively.
29
The cost basis and fair market value of marketable securities at
December 28, 1997, and at December 29, 1996, were as follows:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Amortized Gross Gross Fair
Cost Unrealized Unrealized Market
In thousands Basis Gains Losses Value
- -----------------------------------------------------------------------------
DECEMBER 28, 1997
Certificates of deposit $27,447 $ -- $ -- $27,447
Mortgage-backed 22,588 1,281 (213) 23,656
Equity and other 1,074 234 (29) 1,279
- -----------------------------------------------------------------------------
Total $51,109 $1,515 $(242) $52,382
- -----------------------------------------------------------------------------
December 29, 1996
Mortgage-backed $33,477 $1,442 $(583) $34,336
Equity and other 1,074 530 -- 1,604
- -----------------------------------------------------------------------------
Total $34,551 $1,972 $(583) $35,940
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
There were no sales of available-for-sale securities during the year.
The mortgage-backed securities held at December 28, 1997, have expected
maturities ranging from one to 22 years.
7 LONG-TERM DEBT
- --------------------------------------------------------------------
- --------------------------------------------------------------------
DECEMBER 28, December 29,
In thousands 1997 1996
- --------------------------------------------------------------------
Revolving-credit facility $ -- $205,000
Notes payable with a weighted-
average interest rate at
December 28, 1997, of 7.3%,
due through 2006 273,478 353,821
Other bank borrowings with a
weighted-average interest rate at
December 28, 1997, of 5.70% 104,573 44,419
Commercial paper with a
weighted-average interest rate at
December 28, 1997, of 5.83% 79,907 --
Non-U.S. borrowings with a
weighted-average interest rate
of 4.03% at December 28, 1997,
due through 2002 20,352 25,094
Industrial revenue bonds with a
weighted-average interest rate
at December 28, 1997, of 3.93%,
due through 2010 19,855 23,900
Other 9,904 8,552
- --------------------------------------------------------------------
508,069 660,786
Less current portion 5,256 15,690
- --------------------------------------------------------------------
Long-term debt $502,813 $645,096
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Principal payments on long-term debt, including capital leases in each
of the five years subsequent to December 28, 1997, are $5.3, $8.3, $189.9,
$12.0 and $15.5 million, respectively.
The Corporation has a revolving-credit facility with a group of banks
that provides for a commitment of $500.0 million through March 29, 2000. The
Corporation has the option, at the time of drawing funds under that facility,
of selecting an interest rate based on a number of benchmarks, including
LIBOR, the certificate of deposit rate and the prime rate of the agent bank.
The credit facility includes covenants, among which are limitations on the
amount of future indebtedness that are based on certain financial ratios.
Dividends are permitted to continue at the current rate per share and may be
increased, provided the annual payout does not exceed 50% of net earnings.
In June 1997, the Corporation initiated a commercial paper program,
which is backed by the $500.0-million revolving-credit facility. The
Corporation has a number of committed and uncommitted credit facilities to
provide funding for its international operations. In the normal course of its
business activities, the Corporation is required under certain contracts to
provide letters of credit that may be drawn upon in the event the Corporation
fails to perform under the contracts. Outstanding letters of credit, or
similar financial instruments, amounted to $49.9 million at December 28, 1997.
Credit facility and commercial paper borrowings are classified as
long-term based on the Corporation's ability and intent to refinance such
borrowings.
8 STOCK OPTION AND INCENTIVE PLANS
The Corporation has stock-incentive plans that provide for awards of stock
options and restricted stock to its key employees. At December 28, 1997, a
total of 2,491,911 shares was reserved for issuance under those plans.
The following is a summary of the option transactions for the years
1997, 1996 and 1995:
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Average
Per Share
Shares Option Price
- ----------------------------------------------------------------------
Balance at January 1, 1995 2,319,516 $28.07
- ----------------------------------------------------------------------
Granted 660,128 27.08
Exercised (380,210) 23.26
Terminated (189,310) 29.66
- ----------------------------------------------------------------------
Balance at December 31, 1995 2,410,124 28.45
- ----------------------------------------------------------------------
Granted 375,063 37.36
Exercised (502,420) 23.90
Terminated (116,535) 31.85
- ----------------------------------------------------------------------
Balance at December 29, 1996 2,166,232 30.71
- ----------------------------------------------------------------------
Granted 545,237 45.70
Exercised (801,132) 27.11
Terminated (61,592) 35.87
- ----------------------------------------------------------------------
BALANCE AT DECEMBER 28, 1997 1,848,745 $36.53
- ----------------------------------------------------------------------
Exercisable at December 31, 1995 1,111,612 $27.48
Exercisable at December 29, 1996 1,536,214 $28.95
EXERCISABLE AT DECEMBER 28, 1997 1,074,759 $32.02
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
30
The following is a summary of options outstanding at December 28, 1997:
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------------------------------------------- --------------------------------
Range Weighted-Average
of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ----------------------------------------------------------------------------------------------------------
$18.49 - $32.38 677,702 4.8 years $30.08 614,377 $29.88
$32.65 - $38.59 633,494 6.7 $35.77 453,283 $34.77
$39.50 - $45.75 537,549 9.1 $45.55 7,099 $42.01
- ----------------------------------------------------------------------------------------------------------
$18.49 - $45.75 1,848,745 6.7 $38.53 1,074,759 $32.02
- ----------------------------------------------------------------------------------------------------------
The 1993 Management Stock Ownership Plan provides that, for each
calendar year, up to 1.25% of the outstanding common stock of the Corporation
will be available for issuance as grants or awards. That plan provides for
granting stock options at a price not less than the fair market value on the
date of grant with a term not to exceed 10 years. The plan also provides for
the issuance of restricted stock awards as incentive compensation to key
employees. The awards are subject to certain restrictions, including full
vesting if the recipient remains in the employ of the Corporation for three
years after receipt of the award. The value of the awards is recorded as
compensation expense. Restricted shares, plus cash payments for federal and
state taxes awarded under that plan, amounted to 127,641 shares awarded in
1997; 63,844 shares, plus $0.5 million, awarded in 1996; and 41,748 shares,
plus $0.6 million, awarded in 1995.
The Corporation has a restricted stock plan for nonemployee directors
under which each director receives 200 restricted shares of common stock
annually for a full year of service. Those shares remain restricted during
the director's tenure. Shares issued under that plan were 2,000 in 1997;
2,162 in 1996; and 1,850 in 1995.
The Corporation continues to account for its stock-based
employee-compensation plans in accordance with Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no
compensation cost has been recognized for fixed stock-option plans. In
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," a
valuation using the fair-value-based accounting method has been made for
stock options issued in 1997, 1996 and 1995. That valuation was performed
using the Black-Scholes option-pricing model.
The Corporation's 10-year term options were valued assuming risk-free
interest rates of 6.25%, 5.25% and 7.5% on their respective issuance dates in
1997, 1996 and 1995; a dividend yield of 2.5%; an average expected-option
life of five years; and volatility of 20%. The valuation determined a per
share weighted-average fair value for 10-year options granted during 1997,
1996 and 1995 of $10.36, $8.03 and $8.20, respectively. Had those options
been accounted for using the fair-value method, they would have resulted in
additional compensation cost of $2.4 million, $1.1 million and $0.6 million,
net of taxes for 1997, 1996 and 1995, respectively. Since the fair-value
method amortizes the estimated value of those options over their three-year
vesting period, the full pro-forma effect of the method is only evident in
1997.
The Corporation also has five-year term options outstanding that were
issued in exchange for outstanding options of Augat. Those options were
valued using an assumed risk-free interest rate of 5.4% on their original
issuance date in 1995, a dividend yield of 2.5%, an average expected-option
life of 2.5 years and volatility of 20%. The value of five-year options
issued in 1996 was not significant, and no options were granted subsequent to
1996. The valuation resulted in a per share weighted-average fair value for
those five-year options of $11.91. Under the fair-value method, the entire
value of those options would have been recorded as additional compensation
cost of $3.2 million net of taxes in 1996 due to accelerated vesting of those
options upon change of control of Augat.
Had the Corporation adopted the fair-value-based accounting method for
stock options effective January 2, 1995, net earnings would have been $152.3
million ($2.78 basic earnings per share; $2.76 diluted earnings per share) in
1997; $55.6 million ($1.05 basic earnings per share; $1.04 diluted earnings
per share) in 1996; and $87.9 million ($1.67 basic earnings per share; $1.66
diluted earnings per share) in 1995.
9 POSTRETIREMENT BENEFITS
PENSION PLANS
The Corporation and its subsidiaries have several noncontributory pension
plans covering most employees. Those plans generally provide pension benefits
that are based on compensation levels and
31
years of service. Annual contributions to the plans are made according to the
established laws and regulations of the applicable countries. Plan assets are
primarily invested in equity securities, fixed-income securities and cash
equivalents.
Net periodic pension costs for 1997, 1996 and 1995 for the Corporation's
defined benefit pension plans included the following components:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
In thousands 1997 1996 1995
- ---------------------------------------------------------------------
Service cost -- benefits
earned during the period $ 8,279 $ 7,773 $ 6,344
Interest cost on projected
benefit obligation 14,657 13,110 11,670
Actual return on assets (23,341) (22,848) (18,308)
Net amortization and deferral 5,099 6,136 4,087
- ---------------------------------------------------------------------
Net periodic pension cost $ 4,694 $ 4,171 $ 3,793
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Assumptions used in developing the net periodic pension costs were as
follows:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
U.S. Plans Non-U.S. Plans
----------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------
Discount rate 7.8% 7.5% 7.9% 6.3% 7.2% 7.4%
Rate of increase in
compensation level 4.5% 4.5% 5.5% 4.2% 4.8% 5.0%
Expected long-term
rate of return
on plan assets 9.0% 9.0% 8.5% 7.7% 8.6% 8.5%
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Rates are weighted averages.
The following table sets forth the funded status of the Corporation's
defined benefit plans and amounts recognized in the Corporation's balance
sheet:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
DECEMBER 28, December 29,
1997 1996
- ---------------------------------------------------------------------
Actuarial present value of
projected benefits based on
employment service to date
and present pay levels:
Vested employees $197,160 $162,557
Non-vested employees 6,853 5,372
- ---------------------------------------------------------------------
Accumulated benefit
obligation 204,013 167,929
Additional amounts related
to projected pay increases 16,832 12,061
- ---------------------------------------------------------------------
Projected benefit obligation 220,845 179,990
Plan assets at fair value 210,832 192,849
- ---------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation (10,013) 12,859
Unrecognized transition assets (4,818) (6,407)
Unrecognized net (gain) loss 7,024 (11,461)
Unrecognized prior service cost 1,873 2,338
- ---------------------------------------------------------------------
Accrued pension cost $ (5,934) $ (2,671)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
The present value of projected benefits for U.S. plans recorded at
December 28, 1997, and at December 29, 1996, was determined using discount
rates of 7.25% and 7.75%, respectively, and an assumed rate of increase in
compensation of 4.5% for both years.
The Corporation maintains certain other non-U.S. pension plans. Pension
expense related to those non-U.S. plans in 1997, 1996 and 1995 was $2.0, $1.5
and $0.9 million, respectively.
The Corporation maintains a non-qualified supplemental pension plan
covering certain key executives, which provides for benefit payments that
exceed the limit for deductibility imposed by income tax regulations, and a
retirement plan for non-employee directors (closed effective December 1997),
which provides benefits based on compensation and years of service. The
projected benefit obligation relating to those unfunded plans was $12.3
million at December 28, 1997, and $18.5 million at December 29, 1996. Pension
expense for those plans was $2.2, $10.7 and $2.4 million in 1997, 1996 and
1995, respectively. The 1996 pension expense includes $7.9 million for early
retirement of certain executives.
OTHER POSTRETIREMENT BENEFIT PLANS
The Corporation sponsors defined contribution 401(k) savings plans for its
U.S. employees not represented by a labor organization for which the
Corporation's contributions are based on a percentage of employee
contributions. The cost of those plans was $5.0, $4.5 and $3.5 million in
1997, 1996 and 1995, respectively.
The Corporation provides certain health-care and life-insurance benefits
to certain retired employees and certain active employees who meet age and
length-of-service requirements. The Corporation is recognizing the estimated
liability for those benefits over the estimated lives of the individuals
covered. The Corporation is not funding that liability. The Plan has been
closed to new entrants.
32
The net periodic cost for postretirement health-care and life-insurance
benefits in 1997, 1996 and 1995 included the following components:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
In thousands 1997 1996 1995
- ---------------------------------------------------------------------
Service cost -- benefits earned
during the period $ 37 $ 89 $ 108
Interest cost on accumulated
benefits 1,888 2,430 1,377
Net amortization (1,111) 829 590
- ---------------------------------------------------------------------
Net periodic postretirement cost $ 814 $3,348 $2,075
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
The following table shows the Corporation's accumulated postretirement
benefit obligations and the amounts recognized in the Corporation's balance
sheet:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
DECEMBER 28, December 29,
In thousands 1997 1996
- ---------------------------------------------------------------------
Retirees $ 24,885 $ 30,332
Fully eligible active participants 587 624
Other active participants 861 1,775
- ---------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 26,333 32,731
- ---------------------------------------------------------------------
Unrecognized transition liability (14,918) (15,927)
Unrecognized net gain 7,478 4,643
Unrecognized prior-service cost (121) (162)
- ---------------------------------------------------------------------
Accrued postretirement
benefit $ 18,772 $ 21,285
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% in 1997 and 7.5% in 1996. An
increase in the cost of covered health-care benefits of 8.9% was assumed for
1998 and was graded down annually to 5.5% for 2005 and future years. A 1%
increase in the health-care-cost trend rate would increase the accumulated
postretirement benefit obligation by $1.4 million at December 28, 1997, and
the net periodic cost by $0.1 million for the year then ended.
10 COMMITMENTS
The Corporation and its subsidiaries are parties to various leases relating
to plants, distribution facilities, office facilities, automobiles and other
equipment. Related real estate taxes and insurance and maintenance expenses
are normally obligations of the Corporation. It is expected that in the
normal course of business, the majority of the leases will be renewed or
replaced by other leases. Capitalized leases are not significant.
Future minimum payments under noncancelable operating leases consisted
of the following at December 28, 1997:
- ----------------------------------------------------
- ----------------------------------------------------
Future Minimum
In thousands Payments
- ----------------------------------------------------
1998 $ 27,780
1999 15,339
2000 12,190
2001 10,315
2002 9,052
Thereafter 48,747
- ----------------------------------------------------
Total minimum operating
lease payments $123,423
- ----------------------------------------------------
- ----------------------------------------------------
Rent expense for operating leases was $34.8, $34.2 and $32.3 million in
1997, 1996 and 1995, respectively.
11 OTHER FINANCIAL DATA
Other expense -- net consisted of the following:
- --------------------------------------------------------------------
- --------------------------------------------------------------------
In thousands 1997 1996 1995
- --------------------------------------------------------------------
Investment income $ 7,246 $ 8,716 $ 7,197
Interest expense (51,623) (48,689) (31,775)
Index put options -- (5,452) --
Income from equity
investees 13,909 7,920 2,149
Foreign currency losses (3,759) (2,065) (100)
Foreign-exchange contract
gains (losses) 2,071 1,077 (658)
Other (2,526) (1,008) (1,830)
- --------------------------------------------------------------------
Other expense -- net $(34,682) $(39,501) $(25,017)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Interest-rate swaps increased interest expense by $0.1 million in 1997
and 1996, while reducing interest expense by $0.2 million in 1995.
The Corporation expenses the cost of advertising as it is incurred.
Total advertising expense was $21.9 million in 1997, $18.0 million in 1996,
and $17.3 million in 1995.
Accrued liabilities, including salaries, fringe benefits and other
compensation, amounted to $47.7 and $37.4 million in 1997 and 1996,
respectively.
Inventories consisted of the following:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
DECEMBER 28, December 29,
In thousands 1997 1996
- ---------------------------------------------------------------------
Finished goods $157,095 $153,067
Work in process 66,726 64,979
Raw materials 150,156 145,260
- ---------------------------------------------------------------------
Total inventories $373,977 $363,306
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
33
12 BUSINESS SEGMENTS
The Corporation operates in three business segments: Electrical Construction
and Maintenance Components (Electrical), Electronic/OEM Components
(Electronic), and Other Products and Components (Other). Net sales are
comprised of sales to unaffiliated customers. Segment earnings from
operations consist of net sales less the cost of sales and operating
expenses. General corporate expenses have not been allocated to segments.
General corporate assets not allocated to segments are principally cash and
investments.
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
In thousands 1997 1996(a)(b) 1995(a)(b)
- ----------------------------------------------------------------------
NET SALES
Electrical $ 764,161 $ 643,376 $ 573,580
Electronic 893,904 903,942 834,123
Other 456,653 437,827 325,665
- ----------------------------------------------------------------------
Total $2,114,718 $1,985,145 $1,733,368
- ----------------------------------------------------------------------
EARNINGS FROM OPERATIONS
Electrical $ 131,303 $ 104,556 $ 90,541
Electronic 109,205 32,061 68,309
Other 50,454 51,452 35,734
General Corporate (31,844) (57,690) (40,637)
- ----------------------------------------------------------------------
Total $ 259,118 $ 130,379 $ 153,947
- ----------------------------------------------------------------------
IDENTIFIABLE ASSETS
Electrical $ 563,414 $ 546,723 $ 516,171
Electronic 702,994 728,621 615,086
Other 521,881 577,236 331,356
General Corporate 250,386 278,657 204,245
- ----------------------------------------------------------------------
Total $2,038,675 $2,131,237 $1,666,858
- ----------------------------------------------------------------------
CAPITAL EXPENDITURES
Electrical $ 47,538 $ 32,164 $ 55,762
Electronic 44,454 60,553 59,747
Other 22,313 14,837 15,727
General Corporate 2,414 253 206
- ----------------------------------------------------------------------
Total $ 116,719 $ 107,807 $ 131,442
- ----------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Electrical $ 33,152 $ 28,728 $ 26,401
Electronic 39,113 40,868 36,961
Other 22,388 21,804 12,919
General Corporate 671 181 214
- ----------------------------------------------------------------------
Total $ 95,324 $ 91,581 $ 76,495
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ------------------------------
(a) 1996 included special charges of $1.5 million in Electrical, $67.1
million in Electronic, $3.5 million in Other and $18.9 million in General
Corporate. 1995 included special charges of $23.0 million in Electronic.
See Notes 3 and 4.
(b) Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
13 FINANCIAL INFORMATION RELATING TO OPERATIONS
IN DIFFERENT GEOGRAPHIC AREAS
The Corporation operates in three principal areas: U.S., Europe and
other locations (primarily Canada, Mexico and the Far East). Transfers
between geographic areas were priced on a basis that yielded an appropriate
rate of return based on assets employed, risk and other factors.
General corporate expenses have not been allocated to geographic areas.
General corporate assets not allocated to geographic areas are
principally cash and investments.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
In thousands 1997 1996(a) 1995(a)
- -----------------------------------------------------------------------------
SALES TO UNAFFILIATED CUSTOMERS
U.S. $1,621,946 $1,504,210 $1,306,458
Europe 204,238 201,853 202,153
Other 288,534 279,082 224,757
- -----------------------------------------------------------------------------
Total $2,114,718 $1,985,145 $1,733,368
- -----------------------------------------------------------------------------
SALES OR TRANSFERS BETWEEN
GEOGRAPHIC AREAS
U.S. $ 115,251 $ 101,272 $ 87,425
Europe 8,825 12,787 15,432
Other 60,564 49,452 32,198
- -----------------------------------------------------------------------------
Total $ 184,640 $ 163,511 $ 135,055
- -----------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
U.S. $ 218,333 $ 125,517 $ 131,209
Europe 20,974 23,052 27,658
Other 46,820 39,700 35,717
General Corporate (27,009) (57,890) (40,637)
- -----------------------------------------------------------------------------
Earnings from
operations 259,118 130,379 153,947
Other expense -- net (34,682) (39,501) (25,017)
- -----------------------------------------------------------------------------
Total $ 224,436 $ 90,878 $ 128,930
- -----------------------------------------------------------------------------
IDENTIFIABLE ASSETS
U.S. $1,265,174 $1,397,562 $1,088,188
Europe 167,607 209,066 160,732
Other 278,838 230,963 200,980
General Corporate 328,328 294,912 221,551
Adjustments and
eliminations (1,272) (1,266) (4,593)
- -----------------------------------------------------------------------------
Total $2,038,675 $2,131,237 $1,666,858
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(a) 1996 included charges of $61.9 million in U.S., $6.7 million in
Europe, $3.5 million in Other, $18.9 million in General Corporate and $6.1
million in Other expense. 1995 included charges of $19.9 million in U.S.,
$1.0 million in Europe and $2.1 million in Other.
See Notes 3 and 4.
34
COMPANY REPORT ON FINANCIAL STATEMENTS
TO THE SHAREHOLDERS OF
THOMAS & BETTS CORPORATION:
The accompanying financial statements, as well as all financial data in this
annual report, have been prepared by the Corporation in accordance with
generally accepted accounting principles consistently applied. As such, they
include certain amounts that are based on the Corporation's estimates and
judgments. The Corporation has systems of internal control that are designed
to provide reasonable assurance that the financial records are reliable for
preparing financial statements and maintaining accountability for assets, and
that assets are safeguarded against loss from unauthorized use or
disposition. Those systems are augmented by the positive attitude of
management in maintaining a sound control environment, communication of
established written policies and procedures, the maintenance of a qualified
internal auditing group, the selection and training of qualified personnel
and an organizational structure that provides appropriate delegation of
authority, segregation of duties and regular review of financial performance
by management. To complement the systems of internal control, additional
safeguards are provided by the independent auditors and the Audit Committee
of the Board of Directors. The independent auditors, whose report is set
forth opposite, perform an objective, independent audit of the Corporation's
financial statements taken as a whole. The Audit Committee, composed entirely
of outside directors, meets periodically with the independent auditors,
director of internal audit and members of management to review matters
relating to the quality of financial reporting and internal-accounting
control and the nature, extent and results of audit efforts.
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
THOMAS & BETTS CORPORATION:
We have audited the accompanying consolidated balance sheets of Thomas &
Betts Corporation and subsidiaries as of December 28, 1997 and December 29,
1996, and the related consolidated statements of earnings, cash flows, and
shareholders' equity for each of the years in the three-year period ended
December 28, 1997. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We did not audit the financial statements of Augat Inc. (a wholly
owned subsidiary) as of December 29, 1996 and for each of the years in the
two year period then ended, which statements reflect total assets
constituting 20 percent as of December 29, 1996 and total revenues
constituting 29 percent and 31 percent for each of the years in the two-year
period ended December 29, 1996, respectively, of the related consolidated
totals. Those statements were audited by other auditors whose unqualified
report, dated February 6, 1997, has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Augat Inc., is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report
of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Thomas & Betts
Corporation and subsidiaries at December 28, 1997 and December 29, 1996 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 28, 1997, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Memphis, Tennessee
February 5, 1998
35
QUARTERLY REVIEW
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------- -------------- ------------
- --------------------------------------------------------- -------------- ------------
In thousands
(except per share data) 1997 1996(a) 1995(b)
- --------------------------------------------------------- -------------- ------------
FIRST QUARTER
Net sales.................................$ 515,919 $ 486,733 $ 435,062
Gross profit.............................. 159,021 143,298 125,050
Net earnings.............................. 30,334 26,080 22,788
Earnings per common share
Basic................................. .56 .49 .44
Diluted............................... .56 .49 .43
Cash dividends declared per share......... .28 .28 .28
Market price range........................$ 471/2-421/2 $391/2-3515/16 $343/8-323/8
SECOND QUARTER
Net sales.................................$ 545,847 $ 499,780 $ 428,707
Gross profit.............................. 172,064 151,276 130,061
Net earnings.............................. 38,344 30,965 26,419
Earnings per common share
Basic................................. .70 .58 .50
Diluted............................... .69 .58 .50
Cash dividends declared per share......... .28 .28 .28
Market price range........................$ 553/8-41 $ 401/4-37 $341/4-313/8
THIRD QUARTER
Net sales.................................$ 520,395 $ 497,046 $ 430,165
Gross profit.............................. 165,266 150,894 126,954
Net earnings.............................. 40,253 33,622 25,473
Earnings per common share
Basic................................. .73 .63 .49
Diluted .............................. .73 .63 .48
Cash dividends declared per share......... .28 .28 .28
Market price range........................$ 5811/16-519/16 $ 391/2-343/4 $351/8-321/4
FOURTH QUARTER
Net sales.................................$ 532,557 $ 501,586 $ 439,434
Gross profit.............................. 178,063 141,646 129,840
Net earnings (loss)....................... 45,930 (30,799) 13,822
Earnings (loss) per common share
Basic................................. .84 (.57) .26
Diluted............................... .83 (.57) .26
Cash dividends declared per share......... .28 .28 .28
Market price range........................$5513/16-4315/16 $ 457/8-377/8 $375/8-311/4
- --------------------------------------------------------- -------------- ------------
- --------------------------------------------------------- -------------- ------------
Restated to include the results of Augat Inc., acquired December 11, 1996,
and accounted for as a pooling of interests. Includes the results of Amerace
Corporation from January 2, 1996. Basic per share amounts are based on
average shares outstanding in each quarter. Diluted per share amounts also
reflect potential dilution from stock options.
(a) 1996 included special charges of $97.1 million pretax ($1.23 basic and
$1.22 diluted per share).
(b) 1995 included special charges of $23.0 million pretax ($0.29 basic and
diluted per share).
36
SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------- -------------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------------
Dollars and shares in thousands
(except per share data) 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------- ---------------------------------------------------------------------
OPERATIONAL DATA
Net sales.................................. $ 2,114,718 $ 1,985,145 $ 1,733,368 $ 1,573,602 $1,349,446 $ 1,273,080
----------- ---------------------------------------------------------------------
Costs and expenses
Cost of sales.......................... 1,440,303 1,398,031 1,221,463 1,118,224 945,102 880,326
Marketing, general and administrative.. 346,046 339,124 283,861 255,073 239,231 227,027
Research and development............... 51,896 47,229 44,083 40,543 37,176 36,346
Amortization of intangibles............ 17,355 15,323 11,314 12,345 13,072 14,760
Merger expense......................... -- 30,558 -- -- -- --
Provision for restructured operations.. -- 24,501 18,700 79,011 -- 15,000
----------- ---------------------------------------------------------------------
1,855,600 1,854,766 1,579,421 1,505,196 1,234,581 1,173,459
----------- ---------------------------------------------------------------------
Earnings from operations................... 259,118 130,379 153,947 68,406 114,865 99,621
Other expense--net......................... (34,682) (39,501) (25,071) (28,212) (31,323) (36,883)
Earnings from continuing operations
before income taxes.................... 224,436 90,878 128,930 40,194 83,542 62,738
Income taxes............................... 69,575 31,010 40,428 12,107 24,353 15,572
----------- ---------------------------------------------------------------------
Earnings from continuing operations
before cumulative effect of change
in accounting for income taxes......... 154,861 59,868 88,502 28,087 59,189 47,166
----------- ---------------------------------------------------------------------
Net earnings(a)............................ $ 154,861 $ 59,868 $ 88,502 $ 94,020 $ 72,139 $ 57,509
----------- ---------------------------------------------------------------------
Net return on sales........................ 7.3% 3.0% 5.1% 6.0% 5.3% 4.5%
Return on average shareholders' equity..... 16.8% 7.0% 10.8% 12.8% 10.9% 9.7%
FINANCIAL POSITION (AT YEAR-END)
Current assets............................. $ 796,150 $ 957,051 $ 750,386 $ 732,453 $ 665,599 $ 621,104
Current liabilities ....................... $ 439,808 $ 491,900 $ 402,874 $ 353,987 $ 263,045 $ 249,426
Working capital ........................... $ 356,342 $ 465,151 $ 347,512 $ 378,466 $ 402,554 $ 371,678
Current ratio ............................. 1.8 to 1 1.9 to 1 1.9 to 1 2.1 to 1 2.5 to 1 2.5 to 1
Property, plant and equipment-net.......... $ 569,762 $ 539,944 $ 472,833 $ 396,364 $ 396,003 $ 394,400
Long-term debt............................. $ 502,813 $ 645,096 $ 353,666 $ 354,552 $ 439,299 $ 477,284
Shareholders' equity ...................... $ 977,381 $ 868,382 $ 850,312 $ 790,564 $ 682,443 $ 644,543
Total assets............................... $ 2,038,675 $ 2,131,237 $ 1,666,858 $ 1,566,170 $1,451,042 $ 1,412,511
COMMON STOCK DATA
Average shares outstanding:
Basic.................................. 54,717 53,059 52,494 50,862 49,616 49,110
Diluted................................ 55,090 53,512 52,722 51,160 50,027 49,732
Cash dividends declared ................... $ 60,971 $ 48,412 $ 47,380 $ 44,958 $ 42,220 $ 41,948
Percent of net earnings................ 39% 81% 54% 48% 59% 73%
Per share
Earnings from continuing operations
Basic .............................. $ 2.83 $ 1.13 $ 1.69 $ 0.55 $ 1.19 $ 0.96
Diluted ............................ $ 2.81 $ 1.12 $ 1.68 $ 0.55 $ 1.18 $ 0.95
Net earnings
Basic .............................. $ 2.83 $ 1.13 $ 1.69 $ 1.85 $ 1.45 $ 1.17
Diluted ............................ $ 2.81 $ 1.12 $ 1.68 $ 1.84 $ 1.44 $ 1.16
Cash dividends declared ............... $ 1.12 $ 1.12 $ 1.12 $ 1.12 $ 1.12 $ 1.12
Shareholders' equity .................. $ 17.77 $ 16.29 $ 16.15 $ 15.33 $ 13.69 $ 13.09
Market price range..................... $5811/16-41 $457/8-343/4 $375/8-311/4 $355/8-291/8 $ 36-281/2 $341/2-273/8
OTHER DATA
Capital expenditures ...................... $ 116,719 $ 107,807 $ 131,442 $ 98,358 $ 58,932 $ 61,929
Depreciation............................... $ 77,969 $ 76,258 $ 65,181 $ 63,674 $ 60,592 $ 56,011
Employees at year-end...................... 16,400 14,700 12,600 11,800 12,300 11,500
- ------------------------------------------------------- -------------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------------
Restated to include the results of Augat Inc., acquired December 11, 1996,
and accounted for as a pooling of interests. Includes the results of Amerace
Corporation from January 2, 1996, and American Electric from January 2, 1992.
(a) Net earnings for 1996 included special charges of $97.1 million pretax
($1.23 basic and $1.22 diluted per share). Net earnings for 1995 included
special charges of $23.0 million pretax ($0.29 basic and diluted per share).
Net earnings in 1994, 1993 and 1992 included after-tax earnings from
discontinued operations (Vitramon, Inc.), of $7.4 million, $11.3 million
and $10.3 million, respectively. Net earnings in 1994 also included a
pretax gain from the sale of Vitramon of $99.1 million, a pretax
restructuring charge of $79.0 million and a pretax operating write-down of
$10.6 million for previously vacated facilities. Those items offset each
other on an after-tax basis. Net earnings in 1993 also included a positive
impact from a cumulative effect of change in accounting for income taxes of
$1.6 million ($0.03 basic and diluted per share).
37
DIRECTORS
ERNEST H. DREW
FORMER CHIEF EXECUTIVE OFFICER,
INDUSTRIES AND TECHNOLOGY GROUP,
WESTINGHOUSE ELECTRIC CORPORATION
DIRECTOR SINCE 1989(2)(3)
T. KEVIN DUNNIGAN
CHAIRMAN OF THE BOARD
OF THE CORPORATION
DIRECTOR SINCE 1975(2)(3)
JEANANNE K. HAUSWALD
FORMER VICE PRESIDENT AND TREASURER,
THE SEAGRAM COMPANY LTD.
DIRECTOR SINCE 1993(4)
THOMAS W. JONES
VICE CHAIRMAN, TRAVELERS GROUP, INC.,
AND CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
SMITH BARNEY ASSET MANAGEMENT DIVISION OF
TRAVELERS GROUP, INC. (FINANCIAL SERVICES)
DIRECTOR SINCE 1992(1)
ROBERT A. KENKEL
FORMER CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND
CHIEF OPERATING OFFICER,
THE PULLMAN CO.
DIRECTOR SINCE 1994(3)(4)
JOHN N. LEMASTERS
FORMER CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER, AUGAT INC.
DIRECTOR SINCE 1996(4)
(1)AUDIT COMMITTEE
(2)CORPORATE GOVERNANCE COMMITTEE
(3)EXECUTIVE COMMITTEE
(4)HUMAN RESOURCES COMMITTEE
KENNETH R. MASTERSON
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY, FDX CORPORATION
(TRANSPORTATION SERVICES)
DIRECTOR SINCE 1995(2)
THOMAS C. MCDERMOTT
PROPRIETOR, FORBES PRODUCTS, L.L.C.
(CUSTOM VINYL BUSINESS PRODUCTS)
DIRECTOR SINCE 1996(1)
CLYDE R. MOORE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
OF THE CORPORATION
DIRECTOR SINCE 1993(2)(3)
JEAN-PAUL RICHARD
PRIVATE INVESTOR; FORMER PRESIDENT AND
CHIEF EXECUTIVE OFFICER, AGCO CORPORATION
DIRECTOR SINCE 1996(1)
IAN M. ROSS
PRESIDENT EMERITUS,
AT&T BELL LABORATORIES
DIRECTOR SINCE 1980(1)
WILLIAM H. WALTRIP
CHAIRMAN OF THE BOARD, BAUSCH & LOMB
INCORPORATED (OPTICAL PRODUCTS), AND
CHAIRMAN OF THE BOARD, TECHNOLOGY
SOLUTIONS COMPANY (COMPUTER TECHNOLOGY
SERVICES) DIRECTOR SINCE 1983(3)(4)
OFFICERS
CLYDE R. MOORE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
T. ROY BURTON
PRESIDENT -- ELECTRONICS/OEM GROUP
GREGORY M. LANGSTON
GROUP PRESIDENT -- INTERNATIONAL
W. NEIL PARKER
PRESIDENT -- ELECTRICAL COMPONENTS GROUP
JOHN R. JANULIS
VICE PRESIDENT -- CONTROLLER
FRED R. JONES
VICE PRESIDENT -- FINANCE AND TREASURER
JERRY KRONENBERG
VICE PRESIDENT -- GENERAL COUNSEL
DAVID D. MYLER
VICE PRESIDENT -- ADMINISTRATION
GARY R. STEVENSON
VICE PRESIDENT -- OPERATIONS
JANICE H. WAY
CORPORATE SECRETARY
38
CORPORATE INFORMATION
ANNUAL MEETING
The annual meeting of shareholders will be held on Wednesday, May 6, 1998, at
10:00 a.m. at the Winegardner Auditorium, The Dixon Gallery and Gardens, 4339
Park Avenue, Memphis, Tennessee.
ANNUAL REPORT ON FORM 10-K
A copy of the Corporation's Annual Report on Form 10-K (excluding exhibits),
filed with the Securities and Exchange Commission, is available free of
charge by writing to Renee Johansen, Director - Investor Relations, at
Corporate Headquarters. Our Form 10-K, and other documents filed
electronically with the SEC, may be accessed from our website at www.tnb.com.
TRANSFER AGENT, REGISTRAR, AND DIVIDEND DISBURSING AGENT
First Chicago Trust Company of New York
P.O. Box 2534, Suite 4692
Jersey City, New Jersey 07303-2534
Fax (201) 222-4129
Telephone Response Center (800) 446-2617
(24 hours a day, 7 days a week)
Fax (201) 222-4892. TDD Service (201) 222-4955
Correspondence concerning change of address, dividends, lost stock
certificates and stock transfer requirements should be directed to the
address above. Inquiries regarding the Dividend Reinvestment Plan should be
directed to the address below.
DIVIDEND REINVESTMENT PLAN
First Chicago Trust Company of New York
Dividend Reinvestment Plan
P.O. Box 2598
Jersey City, New Jersey 07303-2598
Internet address: www.fctc.com
LISTED NEW YORK STOCK EXCHANGE
Trading symbol: TNB
CORPORATE HEADQUARTERS
Thomas & Betts Corporation
8155 T&B Boulevard
Memphis, Tennessee 38125
(901) 252-8000
INVESTOR INQUIRIES
Inquiries should be directed to the Investor Relations Department at
Corporate Headquarters. Investor information is also available on our website.
VISIT US ON THE WORLD WIDE WEB AT WWW.TNB.COM FOR INVESTOR INFORMATION,
TECHNICAL PRODUCT BACKGROUND OR A GENERAL OVERVIEW OF THOMAS & BETTS.
This entire report is printed on recycled paper.